‘Non-Ideal’ Clients Present Productivity Challenge for Advisors

“Senior advisors often need to face the reality that, while many of these clients were reasons for their early career survival and ultimate success, these relationships now may be far from ideal,” according to Cerulli.


Illustration by RIA Intel

Senior advisors may be overloaded with ‘non-ideal’ clients, challenging the productivity of wealth management firms.

A new survey from Cerulli Associates, a research and consulting firm, found that serving too many clients ranked at the top of the list of advisors’ challenges. Cerulli surveys about 1,200 advisors annually and publishes quarterly reports on their responses.

Cerulli found that advisors are effective when they serve about 100 clients. “Beyond that, client experiences, important daily operations, and longer-term business growth strategies may be sacrificed,” according to Cerulli.

However, in practice, according to Cerulli, senior advisors serve about 160 clients; 29 percent of senior advisors actually reported managing more than 200 clients.

The reasons for holding on to ‘non-ideal’ clients are complicated.

The advisor-client relationship can be deeply personal; therefore, an advisor may struggle reducing the number of clients because of emotional ties. After all, for many senior advisors, long-time clients helped them build their business.

However due to this growth “most mature practices have legacy relationships that are no longer considered ideal clients based on account sizes, needs, specialties, or engagement levels,” Cerulli wrote. “Senior advisors often need to face the reality that, while many of these clients were reasons for their early career survival and ultimate success, these relationships now may be far from ideal.”

Reducing the number of clients can help boost a firm’s productivity and foster growth as senior advisor’s bandwidth improves. According to practice management professionals surveyed by Cerulli, 91 percent believed serving too many non-ideal clients was a moderate or major challenge. Other top challenges included lack of process mapping and documentation (86 percent), and ineffective delegation of staff (86 percent).

Firms need to figure out how many clients their advisors can reasonably handle based on their ideal type.

Advisors don’t necessarily have to fire a client to reduce the number they serve.

According to Cerulli, a simple solution at larger firms like national broker-dealers, wirehouses, and banks, is to transfer non-ideal clients elsewhere in the firm. This provides advisors the opportunity to “end a client relationship with sympathy,” and find a solution that is a better fit for the client’s needs. Some can also offer clients a digital advice solution as an alternative.

For smaller, independent RIA practices, Cerulli suggests RIAs form strategic alliances with firms that can better handle non-ideal clients. Firms with a large number of non-ideal clients can consider selling the accounts to another practice through a third-party platform, or a matchmaking consulting services that some custodians and broker-dealers, like LPL, offer.

This option is relatively rare, according to Cerulli “but it will become more commonplace since it provides the opportunity to monetize the accounts. Moreover, it still allows the advisor to frame the move as a larger business decision with a warm client handoff, versus terminating client relationships.”

RIAs can also try to price the client out, by increasing fees or introducing a minimum fee across all clients.

Holly Deaton (@HollyLDeaton) is a staff writer at RIA Intel and based in New York City.
Related Articles
According to a new report by Cerulli Associates, it’s during times of economic downturn that advisors need to reinforce the value of long-term portfolio management.
Advisors are struggling to differentiate themselves from online sites and showcase their value to non-clients, according to Morningstar.
A report by Broadridge aims to help RIAs and investment managers understand their end clients.